Presenting a promised ‘pro-people’ budget, the railway minister said that economic viability is not the only index of development, according top priority to social commitment.

She went on to add, “People expect to get better rail and train facilities. Development should not be restricted to only few people. People want better connectivity between stations in the nation. My priorities will include better passenger amenities, safety and security and provision of good quality food and drinking water”.

The UPA government presented its farewell budget (Interim Budget) ahead of general elections slated later this year. While the markets were disappointed that the proposals were devoid of a stimulus package, there were no sops for the Indian taxpayers.

Here is an analysis of Interim Budget 2009-10 from top research houses across India.
Kaushal Sampat, COO, Dun & Bradstreet India

Although this was an interim budget, it was expected that there would be announcements of some policy measures that would be growth stimulating in nature.

While acknowledging that the Indian economy is faced with significant challenges in the financial year ahead, the Finance Minister stuck with the conventions of an interim budget and did not announce any policies that could trigger retrieval of the economy from the current slowdown.

Although the outlay on certain infrastructure projects has been increased, it is doubtful if this would be enough to kick-start investment at the required levels.

In line with our expectations, the fiscal deficit has surged and stands at around 7.8% of GDP in FY09 (including off-budget liabilities).

Although the high fiscal deficit has potential risks for the economy in the future, it is inevitable given the need for substantial increase in Government expenditure and the limited scope for revenue mobilization.

With the lack of major growth stimulating measures in the interim budget, we expect the RBI to cut interest rates further before the April’08 monetary policy review to stimulate demand to a certain extent.

India’s rupee strengthened the most in more than two weeks on speculation the government and the central bank will announce more measures next week to revive economic growth.

India is preparing to unveil an interim budget on Feb. 16, which may include steps aimed at countering the slump in industrial production and exports. The Reserve Bank of India may cut interest rates further after the budget, according to Suresh Tendulkar, chairman of the prime minister’s Economic Advisory Council. The government unveiled two stimulus packages and the central bank cut its key rate four times since Oct. 20.

“The rupee is stronger as the market expects additional measures to boost growth to be announced next week,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “Such measures look inevitable after yesterday’s industrial output report. The central bank may cut rates and help restructure loans of companies.”

The rupee climbed 0.3 percent to 48.685 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. That is the biggest gain since Jan. 27. The currency was little changed from its Feb. 6 close of 48.695.

The rupee may trade between 48.50 and 49.25 in the coming days, according to Bhatt. The median estimate of 25 strategists and economists surveyed by Bloomberg is for the rupee to weaken to 49.00 by the end of March.

Stocks Gain

Offshore contracts indicate traders bet the rupee will trade at 48.83 to the dollar in a month, compared with expectations for a rate of 49.03 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

“The rupee may appreciate further if stocks too show a positive trend from here,” Corporation Bank’s Bhatt said. “Asian stock gains and broad dollar weakness are contributing to the rupee’s strength.”

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the franc and Sweden’s krona, fell 0.7 percent to 85.92 today.

Industrial production fell 2 percent in December, the most since 1993, after a revised 1.7 percent gain in November, the government said yesterday. India expects the $1.2 trillion economy will expand 7.1 percent in the fiscal year to March, the slowest pace in six years.

Record Low

The rupee will weaken almost 10 percent to a record low of 54 to the dollar by the end of the year as the worldwide credit crisis curbs foreign direct investment, HSBC Holdings Plc said.

The rupee may also extend last year’s 19 percent slide as employers cut jobs overseas amid a global recession, reducing remittances from Indian workers abroad, Richard Yetsenga, HSBC’s Hong Kong-based strategist, wrote in a research report today. The U.K. bank revised its rupee forecast from 45, HSBC’s Singapore-based economist Robert Prior-Wandesforde, who co-wrote the report, confirmed in a phone call.

“We expect the slower moving remittance and FDI flows to now start to show the strain,” wrote Yetsenga. “Our estimates suggest FDI into Asia could fall to roughly zero this year. While that may be overly pessimistic, the fall in FDI should certainly be spectacular for global reasons.”

Overseas direct investment in India averaged $3.1 billion a month in 2008, compared with $1.3 billion in the previous year, government data show.

“The boom in FDI is long overdue, but cannot last, given the state of corporate finances globally,” Yetsenga wrote.

Renault SA, France’s second-largest carmaker, may abandon a factory project in the southern Indian city of Chennai, Chief Financial Officer Thierry Moulonguet said yesterday. The French company said it is reducing capital investment by 20 percent.

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